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Stability of the money demand function in Asian developing countries

  • Mohsen Bahmani-Oskooee
  • Hafez Rehman

Previous studies that estimated the money demand function in Asian developing countries either employed traditional estimation techniques or recently popularized cointegration technique. While the first group suffers from 'spurious regression' problems, the second group interpreted their finding of cointegration as a sign of stability of estimated parameters. This study, after incorporating the CUSUM and CUSUMSQ tests into cointegration analysis, shows that in some Asian countries even though real M1 or M2 monetary aggregates are cointegrated with their determinants, the estimated parameters are unstable.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 37 (2005)
Issue (Month): 7 ()
Pages: 773-792

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Handle: RePEc:taf:applec:v:37:y:2005:i:7:p:773-792
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  11. Karfakis, Costas I & Parikh, Ashok, 1993. "A Cointegration Approach to Monetary Targeting in Australia," Australian Economic Papers, Wiley Blackwell, vol. 32(60), pages 53-72, June.
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  22. Mohsen Bahmani-Oskooee & Miquel-Angel Galindo Martin & Farhang Niroomand, 1998. "Exchange rate sensitivity of the demand for money in Spain," Applied Economics, Taylor & Francis Journals, vol. 30(5), pages 607-612.
  23. Bahmani-Oskooee, Mohsen & Techaratanachai, Ampa, 2001. "Currency substitution in Thailand," Journal of Policy Modeling, Elsevier, vol. 23(2), pages 141-145, February.
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  26. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  27. Akhtar Hossain, 1994. "The Search for a Stable Money Demand Function for Pakistan: An Application of the Method of Cointegration," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 33(4), pages 969-983.
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